The Ivy Portfolio: How to Invest Like the Top Endowments and Avoid Bear Markets
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Over the past twenty years, the Yale University and Harvard University endowments have achieved unprecedented investment success. Since 1985, the Yale University endowment returned 16.62% per year, easily surpassing the S&P 500 Index's 11.98% return. The Harvard University endowment returned over 15% a year—and both endowments achieved these results with significantly less volatility than the S&P 500. Despite the general success of the top endowments, 2008 proved difficult for many buy-and-hold investors as well as the endowments. Many asset classes finished the year with declines of 30% or more. The Ivy Portfolio shows how individual investors can mimic the stellar long-term investment track records of these top endowments while avoiding bear markets like 2008. The Ivy Portfolio begins by examining the theory, process, and discipline behind the success of the Yale University and Harvard University endowments. It demystifies the techniques that the ivory-tower academic practitioners use to manage their portfolios and shows step by step how an individual investor can hope to duplicate their returns using an innovative ETF-based investment strategy. The Ivy Portfolio then demonstrates a simple tactical asset approach to dampen the impact of bear markets on long-term investment results. The model would have protected an investor from the carnage of 2008, all while eliminating the uncertainty and emotions of investing. The Ivy Portfolio also showcases a method to piggyback the stock-picking abilities of top hedge funds, allowing investors to achieve greater success by following the valuation insights of the smart money. The Ivy Portfolio will show investors exactly how all this can be accomplished—and allow them to achieve an unparalleled level of investment success in the process.
Preface ixAcknowledgments xiPart One Constructing Your Ivy Portfolio 1Chapter 1 The Super Endowments 3Endowments Are Different 4Size Matters ... 8... and So Does Performance 11Active Management over Passive 14Summary 16Chapter 2 The Yale Endowment 17History of the Endowment 18David Swensen's Ascent 22Of Alphas and Betas 30Outlining the Yale Process 33Domestic Equity 34Foreign Equity 35Fixed-Income 37Real Assets 37Private Equity 38Summary 39Chapter 3 The Harvard Endowment 41History of the Endowment 42The Owner's Mentality 43Harvard's Swensen 45More Money, More Problems 48How Harvard Does It 50Summary 53Chapter 4 Building Your Own Ivy League Portfolio 55Do as I Do-Shadowing the Super Endowments 56Risk-Adjusted Returns 64Do as I Say 66Inflation Is the Enemy 68Creating an All-Weather Policy Portfolio through Indexing 71Implementing Your Portfolio 74Rebalancing Your Portfolio 77Summary 78Part Two Alternatives 81Chapter 5 Private Equity 83What Is Private Equity? 84Historical Returns and Benchmarking 85How to Invest in Publicly Listed Private Equity 91Summary 96Chapter 6 Hedge Funds 97A Brief Introduction to Hedge Funds 98Fund of Funds 101Options to Invest in Hedge Funds 113Individual Hedge Funds 123Fund of Funds 125Practical Considerations 131Summary 132Part Three Active Management 133Chapter 7 Winning by Not Losing 135Losing Hurts 136The Quantitative System 141Out-of-Sample Testing and Systematic Tactical Asset Allocation 151Extensions 158A Rotation System 159Practical Considerations and Taxes 160Discipline 162TheSystems versus the Endowments 165Why It Works 166Summary 169Chapter 8 Following the Smart Money 171Introduction to the 13F 172Combining the Top Fund Managers to Create Your Own Fund of Funds 182Summary 185Chapter 9 Develop an Action Plan 187Implementing Your Ivy Portfolio 188Portfolios Discussed in The Ivy Portfolio 191Appendix A A Brief Review of Momentum and Trend Following 195Appendix B Additional Charts 199Appendix C Recommended Reading 207Bibliography 211About the Authors 218Index 219
